Charges a varying amount to expense for each period of an asset’s useful life depending on its usage. Charges are based on the consumed capacity of the asset.
Step 1: Step 2: Amortization Per Unit = (Cost - Salvage Value) Total Units of Production Amortization Expense = Amortization Per Unit × Number of Units Produced in the Period
Example Step 2: Amortization Expense = $.25 per shoe × 7,000 shoes = $1,750 Step 1: Amortization Per Unit = $10,000 - $1,000 36,000 units = $.25 per shoe
Amortization: Double-Declining Balance Method Step 1: Step 2: Step 3: Double- declining- balance rate = 2 × Straight - line amortization rate Amortization expense = Double- declining- balance rate × Beginning period book value Ignores salvage value until later in life Straight - line amortization rate = 100 % Useful life in years
Many companies use accelerated amortization in computing taxable income because it postpones tax payments by charging higher amortization expense in the early years and lower amounts in the later years.
Income Tax Act requires that companies use a declining-balance method for calculating the maximum capital cost allowance that may be claimed in any period.
The Income Tax Act specifies the prescribed rates for various groups of assets
Intangible Assets Non-current assets without physical substance. Useful life is often difficult to determine. Usually acquired for operational use. Intangible Assets Often provide exclusive rights or privileges.